LVMH part in Step Two toy story

LVMH, the world's biggest luxury goods group, is backing a ground-breaking new toy retailer in a head-to-head battle with US giant Toys 'R' Us.

L Capital, a development capital fund sponsored by Bernard Arnault's Moët champagne to Sephora perfumes empire, is to buy a 40% stake in Step Two, a holding company for innovatory Spanish- based toy retailer Imaginarium.

A quarter of Step Two's equity is being sold by UK venture capital group 3i, which has partnered Imaginarium in a global expansion from four stores to 200 over the past eight years. Founder Felix Tena and colleagues retain 51%, 3i will keep 9%.

None of the parties would reveal the price. Last year, Imaginarium made net profits of e4.3 million (£2.7 million), up 17.8%, on sales ahead 42% to e67 million.

Imaginarium, which shares the retail flair of Spanish fashion chains Zara and Mango, has carved a fanatical following among a million parents in 12 countries with a formula of own-brand toys, sold in shops that are tailored to children.

Instead of toy weapons, soldiers and Disney spin-offs, the stores offer brightlycoloured toys designed to encourage creative play.

The deal could reinforce Imaginarium's firepower in its legal battle with Toys 'Rî Us, which three years ago bought a New Jersey-based toy chain, also called Imaginarium, with a similar concept promoted via online bookstore Amazon.com.